RBAâs bad economics

The Reserve Bank believes that lowering the cash interest rate will âfoster sustainable growth in demandâ. This is expressed as âfurther easing in the stance of monetary policyâ.This is wishful thinking at best and bad economics at worst. The bank is driving the Australian economy into a classic Keynesian liquidity trap and consequential recession. The bank should ease the inflationary targetÂ and curb hot money inflows. Its policy of pushing down interest rates is counterproductive because an excessively low inflation rate assists price deflation, which then postpones consumer demand.

Such conditions also lower corporate profit expectations and, therefore, dampen non-export industry investment. The bank should also be criticised for ignoringâthe need for a stable monetary policy.